The Blame Someone Else Crowd

Paul Krugman explains why the false charge that government housing policy caused the financial crisis and recession is harmful:

…No, the CRA wasn’t responsible for the epidemic of bad lending; no, Fannie and Freddie didn’t cause the housing bubble; no, the “high-risk” loans of the GSEs weren’t remotely as risky as subprime.

This really isn’t about the GSEs, it’s about the BSEs — the Blame Someone Else crowd. Faced with overwhelming, catastrophic evidence that their faith in unregulated financial markets was wrong, they have responded by rewriting history to defend their prejudices.

This strikes me as a bigger deal than whether Rubio slurped his water; he and his party are now committed to the belief that their pre-crisis doctrine was perfect, that there are no lessons from the worst financial crisis in three generations except that we should have even less regulation. And given another shot at power, they’ll test that thesis by giving the bankers a chance to do it all over again.

I’ve taken this myth on more times than I can remember, and the evidence against the claim that housing policy caused our problems is very clear. But the myth isn’t going away. First, it’s a convenient story for the Republican view that trying to help poor people is bad for them, and bad for everyone else too. Social insurance such as unemployment compensation makes them lazy, raising the minimum wage actually hurts them overall, attempts to help lower income households purchase a house crash the economy, and so on. It’s all at odds with the evidence but it gives them, as Krugman notes, a shield against tax increases, regulations, and so on that are needed to deal with these problems. The second reason is just as important, there’s no political cost to making these claims. One of the most prominent members of the Republican Party can give an address to the nation in response to the State of the Union that makes false claims, and nothing happens. Telling easily rebutted falsehoods brings little media response from traditional media outlets, but take a drink of water…

About Mark Thoma 243 Articles

Affiliation: University of Oregon

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987 and served as head of the Economics Department for five years. His research examines the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables with a focus on asymmetries in the response of these variables to policy changes, and on changes in the relationship between policy and the economy over time. He has also conducted research in other areas such as the relationship between the political party in power, and macroeconomic outcomes and using macroeconomic tools to predict transportation flows. He received his doctorate from Washington State University.

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